Dr George Elombi is the executive vice-president, African Export-Import Bank (Afreximbank) for corporate governance and legal services. Elombi was in Kigali last week for the third Afreximbank Due Diligence and Corporate Governance Forum. Business Times’ Peterson Tumwebaze caught up with him and talked about governance issues and what African bankers and regulators should do to curb illegal capital outflow, among other financial crimes:

Briefly talk to us about African Export-Import Bank

The bank is the foremost pan-African multilateral financial institution devoted to financing and promoting intra and extra-African trade. It was established in October 1993 by African governments, African private and institutional investors, and non-African investors. It’s an international organisation, with a Charter, which governs its corporate structure and operations. Since 1994, it has disbursed over $41 billion in credit facilities to African businesses, including about $6.2 billion in 2015. Afreximbank had total assets of $9.4 billion as at 30 April 30. It is rated BBB- by Fitch and Baa2 (Moody’s).

Africa has lost more than $50 billion though illicit economic activities in the past two years. How can the continent address this challenge?

The adverse effect of illicit activities on the stability of the Africa’s financial sector and on productivity of firms is enormous. Indeed, if financial crimes are not contained by instituting strong governance structures, the continent’s development and structural transformation will continue to be affected. For instance, the wave of corporate failures in the US and elsewhere, including Lehman Brothers, WorldCom, and Enron brought to the fore the classic principal-agent problem and the adverse implications of "cosmetic accounting” and "sleeping directors”. That’s why Africa must put in place structures and policies that compel banks to observe certain governance standards to insulate against such crises.

How can banks leverage customer due diligence to fight vices like money laundering?

The relevance of customer due diligence has made it the cornerstone of all anti-money laundering programmes globally. There is increasing regulatory focus on customer due diligence because it facilitates and improves business benefits both within and beyond the realm of compliance. At the centre of customer due diligence are the fundamental principles of knowing a customer, defining the context in which it is acceptable to do business with a customer, and understanding the basis on which the ongoing customer relationship develops.

The principles are, therefore, simple and will continue to remain an integral part of good banking practice. Where customers are known, business interactions are understood, and business relationships grow within a well-controlled web of trust and understanding.

In today’s world, it is important to note that we are not short of regulation and regulatory guidance associated with customer due diligence. However, in an increasingly interconnected world, business environments have become even more complex - with multi-national operations and numerous interaction channels. Notwithstanding these developments, customers continuously expect banking products and services to be delivered consistently, irrespective of where these services are originated and how they are channeled to end-users.

As businesses grow and create global presence, introducing new products and services, and increasing customer numbers, firms face challenges in customer due diligence risk assessment, especially those that are still with manual facilities that are inefficient, operationally expensive, and not always consistent.

What should regulators do to protect consumer interests?

In order to maintain regulatory compliance and reduce negative customer impact, firms should automate some due diligence processes and implement an approach that allows for increased agility and responsiveness to change.

In fact, customer-focused organisations are beginning to recognise how customer due diligence can be used to provide additional business insight and are using this to increase customer understanding and improve business practices. Automation allows financial institutions to use a holistic approach when conducting customer credit and anti-money laundering risk assessment processes, as well as product matching and other elements of customer life cycle management.

Remember, the scope of customer due diligence is widening, with almost every aspect of business interaction requiring some level of due diligence. For instance, anti-bribery and corruption requirements call for due diligence associated with supplier relationships. Far from being a regulatory burden, the future of due diligence, for customers, suppliers and other business relationships, is embedded at the heart of successful business practices.

With compliance first at the table in terms of defining the requirements for systems and processes, firms should leverage this opportunity to create wider business benefits from anti-money laundering processes and procedures. This will enable an integrated approach to mitigate the vice, among others.

How is Afreximbank working with other stakeholders to deal with the situation?

Although we, at Afreximbank, recognise that establishing an effective customer due diligence system can be challenging, we believe that overcoming such a challenge is not an option, but a necessity that is part of good business practices.

It is what motivated the Afreximbank to launch the African Customer Due Diligence Repository Platform (ACDIRP) to provide a centralised single source of primary data required to conduct customer due diligence checks on their counterparts. We hope that this will make it possible for lenders who are participating in the arrangement to have access to information needed to undertake their due diligence and, therefore, reduce risks of non-compliance.

The belief is that a decrease in cost of compliance could reduce the cost of trade finance in Africa and, therefore, increase access to funding. At the same time, a reduction or ultimately full elimination of compliance-related risks will create confidence among international banks and serve as an incentive for them to rejoin the African trade finance space (for the few which have already exited).

We are also expanding activities under our African Correspondent Banking initiative, where the Bank delivers a co-branded product targeted at expanding access to correspondent banking services by African banks that are tailored to specific needs.

We are also increasing awareness on the continent on the need to look inwards for funding under the Africa Direct Investment Initiative.

By leveraging internal resources to mitigate risks of sudden stops and capital outflows, we are increasingly putting our destiny into our own hands.

Additionally, we are promoting the use of African-based credit rating agencies. By promoting a wider use of credit rating services, corporate and banking-related information will be commoditised and, in the process, lead to better access to credit through reduced compliance costs.